providing business value: managing people to support a high

Providing Business Value: Managing People to Support a High-Performing Organization

29 July 2003

Rick Poppell, Vice PresidentLily Mok, Senior Compensation AnalystDiane Berry, Managing Vice President

© 2003 Gartner, Inc. and/or its affiliates. All Rights Reserved.

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Agenda

Current state

The changing role of IT

An HCM model for improving business value of IT

Best HCM practices to support a high-performing organization.


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Current State of the IT Employment Environment

Employee Initiated IT Turnover Rates Dropped

Average of 2 to 4 percent.

IT Unemployment Rates Up High rates of workforce reduction Spots of geographic severity

– Silicon Valley

– NY Metro and Northeast

Increased Degree of IT Outsourcing 89% of companies surveyed do it to some

degree

Aging Workforce Concern for loss of critical business knowledge Especially an issue in Public Sector

Emerging Risk of Employee Backlash Need for work/life balance Conscious choices of employer allegiance


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Current State of the IT Employment Environment

Difficult-to-Hire Positions DBA Internet/Web Architect Network Architect and Engineer Security Analyst Project Manager ERP Configurer

Current Hot Skills Oracle PeopleSoft Java MS SQL Server UNIX XML

Average Base Salary Increase 3.5% for 2002 and 2003 A precipitous drop in 2001


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Increased BVIT

Business Partner—Seeks to understand business need; provides alternative solutions

Transactional—Delivers on customer defined requirements; order taker

Consultative—Understand both business and technology; provides proactive solutions

Strategic Leadership—Setting the strategic direction of the Enterprise

Climbing the IT Value Chain

Where are you today?

Where do you need to be?

Increased Competencies and Integration of the Primary HCM Processes

The Changing Role of IT


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The “value” perception of IT increases as you internalize work processes and increase the

capability of the organization

Areas of Focus

Efficiency Measures


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Aligning key Human Capital Management elements is the key to success

Business Value of IT—HCM Model


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Understanding the business strategy and role of IT in supporting the strategy Developing an IT strategy that aligns and supports overarching business

objectives Supporting greater IT credibility

Purpose

HCM Model—Supporting Elements

A common business and IT strategy is key to success


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Purpose Purpose Purpose Purpose Understand degree

of business alignment

Identify required IT functions

Build a process-aligned organization structure

Getting the right people in the right roles

Maximize utilization of people

Effective use of contractors and outsourcers

Reinforce behaviors

Manage and measure performance

Sustain professional development

Reward and Recognize

HCM Model—Purpose

Define job families Define clear roles,

skills and competencies

Define career and progression paths


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Defines HCM strategy that when implemented will support the overarching IT strategy Defines how HCM resources will be sourced and utilized within IT Provides a governance process to ensure strategy elements are being adhered to and

objectives are realized

Purpose

HCM Model—Purpose


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HCM Model—Supporting Elements

Creating competitive advantage through optimization of technology and HCM

Driving for defined business results that support the overarching needs of the enterprise

Realizing competitive advantage through IT

Purpose


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Organization Structure

Purpose Understand degree of business alignment Identify required IT functions Build a process-aligned organization structure


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Influences to Organization Design

The Business Structure—IT should align to optimize relationships related to the overall business structure—centralized vs. decentralized

The Role of IT—Transactional organizations will take on a different structure than a more consultative IT organization

Efficiency vs. Effectiveness—Centralized vs. decentralized models will impact how efficient and/or effective the organization operates

Outsourcing—The degree to which a company outsources all or part of its IT function will impact how the organization is structured and the types of roles required

Roles and Process Design—How an organization is structured will impact how work flows through the organization influencing process and role definitions


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Customers

Customers

Customers

Delivery Support

Project Prioritization

Selection

Matrixed Resource Mgt.

Build, Buy,Outsource,Contractor

SLAsOutsourcing

BVIT Infinite Requests Limited Resources

IT Process Alignment

Work Process and BVIT

How you bring IT resources together will define the BVIT Resource Ownership Project Management Office Centralized vs. Decentralized

Portfolio Management

Project/ResourceManagement


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CentralizedModel

FunctionalModel

DecentralizedModel

IT organizations are usually not always completely Centralized or Decentralized; however, some take on characteristics that drive them to operate to one of the

extremes. An appropriate balance should be sought between flexibility and control based on the business needs, IT strategy and IT culture.

Corporate/Divisional Model

Process OrientedModel

Organization DesignOptions and Impacts

Efficiency Effectiveness


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1 2 3 4 5

Median Annual Sales (millions) $35 $250 $526 $1,850 $6,474Median # of Employees 600 750 2,300 4,600 8,542

Median # of IT Employees 8 31 64 233 693

Median Annual Sales (millions) $26 $235 $666 $2,450 $6,529Median # of Employees 133 650 230 6,071 1,100

Median # of IT Employees 6 30 63 233 522

Ap

plic

atio

ns

Dev

elo

pm

ent

Infr

astr

uct

ure

# of Management Levels

IT Management Structureand Span of Control

The typical management hierarchy for an IT function is between two and three management levels (including the top IT executive level–CIO)

The span of control is a function of management level, with the lowest-level managers having the widest span of control

Span of control varies only slightly across IT sub-functions

Source: Organizing For Results: IT Structures and Staffing Survey, January 2003, people3, Mercer Human Resource Consulting and the Information Technology Association of America

Applications Development 7 to 8 employees per supervisorInfrastructure 6 to 8 employees per supervisorOperations 5 to 9 employees per supervisorProgram Management 3 to 10 employees per supervisor


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Ratio of Employees to IT Professional

11

19

33

36

0

5

10

15

20

25

30

35

40

Financial Services Professional Services Government,Education, Non-profit

Manufacturing

Industry

Nu

mb

er o

f E

mp

loye

es p

er IT

Pro

fess

ion

al


18

25

40

0

5

10

15

20

25

30

35

40

45

< 500 500 - 10,000 > 10,000

Company Size (Number of Total Employees)

Nu

mb

er o

f E

mp

loye

es p

er IT

Pro

fess

ion

al


11

19

33

36

0

5

10

15

20

25

30

35

40

Financial Services Professional Services Government,Education, Non-profit

Manufacturing

Industry

Nu

mb

er o

f E

mp

loye

es p

er IT

Pro

fess

ion

al

IT Staffing Ratios

The overall number of IT staff in a company is dependent both on company size and on industry As the total number of employees increases, there are more employees supported by

each IT professional

Financial Services companies typically have the highest levels of IT staff

Source: Organizing For Results: IT Structures and Staffing Survey, January 2003, people3, Mercer Human Resource Consulting and the Information Technology Association of America


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Outsourcing

The survey indicates that 89 percent of companies outsource at least one IT function to some extent*

IT functions may choose to outsource for a number of reasons*: Focus on core competencies

Train existing staff for emerging needs

Improve time to market

Reduce costs—convert fixed costs to variable

However, potential risks associated with outsourcing should also be considered in deciding whether to outsource: Technical—Being forced to stay with a current architecture because the vendor does not

support the company’s new needs

Business—Losing the capacity to make quick IT decisions or being unable to terminate/convert the contract easily in the event of a merger or acquisition

Economic—Discovering unexpected costs during the contract

*Source: Organizing For Results: IT Structures and Staffing Survey, January 2003, people3, Mercer Human Resource Consulting and the Information Technology Association of America


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Job Family and Role Design

Purpose Define job families Define clear roles, skills and competencies Define career and progression paths


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Career Development Planning Succession Planning Resource Planning

Recruiting—Interviewing Project Staffing Requirements Management Coaching Training Plans

The Right People in the Right Roles Insource vs. Outsource Resource Availability Training to Address Skill and Competency Gaps

Career Paths

Skill and Competence Requirements

Employee Assessmentsand Development Plans

Job Families

Employee and Enterprise Data

Consistent Position Definitions To Support Resource Development and Utilization


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Career Path Progression Within Job Families

Applications Development

Project Management

Leadership

JuniorDeveloper

DeveloperSenior

DeveloperDevelopmentConsultant

ProjectLeader

Manager

ProjectManager

SeniorManager

Senior ProjectManager

Director

ProgramManager

VicePresident


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Skills and Competencies

Skills—What I do... Specific ability related to market based or internally developed products and services

– Relatively easy to identify and develop

– Relatively easy to develop through training

– Poor predictors of long-term performance

Competencies—How I do it... Competencies are characteristics of an individual that are observable, measurable, and predicative of performance within a given role or job.

– Harder to identify and develop in an individual

– Can be developed through a combination of approaches (e.g., training, coaching, feedback)

– Better predictors of long-term performance


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Resource Management

Getting the right people in the right roles Maximize utilization of people Effective use of contractors and outsourcers

Purpose


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What skills are possessed by individual employees?

What level of experience does each employee have for each skill?

When aggregated, can we get a consistent organization view?

What are our organizational skills strengths and weaknesses?

IndividualSkills

IndividualExperience

CollectiveReporting

OrganizationView

Current technology skills

Prior technology skills

Emerging technology skills

High-Level competencies

Years of experience by skill

Date skill last used

Level of proficiency by skill

Supervisor validation

Consistent skills categories and lists

Complete organization view

Strongest capability by skill

Weakest skill

Training direction

Opportunities for contractors or outsourcing

Understanding Current CapabilitySkills Inventory


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Staffing Strategy and TimingQuestions to Answer

Strategy

3+ years

Planning

1-to-3 years

Execution

1-to-6 months

Deployment

1 month

ResourceAssembly

1 year

Where will our enterprise be?

Whatbusinesseswill we be in?

What kind of people will we need?

With whom will we partner?

What kind of investments must we make?

What will bethe role of the IS organization?

What skills, knowledge, proficiency, competencies will we need?

What should we focus on?

What delivery models shall we use?

Where are our gaps?

Which skills should we build? Buy?

Do we have prof’l devel-opment plans?

How many people shall we prepare?

With whom will we work?

For whatwork do we have the right skills?

Which gaps can we fill?

Which gaps can we not fill?

Who and what gets priority?

Who shall we assign to what role?


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Resource Optimization

Reinforce behaviors Manage and measure performance Sustain professional development Reward and recognize

Purpose


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Resource Optimization

Resource optimization is achieved by ensuring your key HR processes are developing and rewarding the right behaviors resulting in desired business results.

Key HR processes include: Performance Management

Career Development

Reward

– Cash

– Non-cash

Succession Planning

Selection


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Performance Management

Performance Management processes will help managers: Establish individual and/or team

objectives aligned to business unit goals

Provide frequent communications on how employees are doing throughout the year (feedback and coaching)

Document results

Fairly evaluate performance

Provide appropriate rewards for individual and team contributions to the business.

Benefits Helps to achieve sustainable

improvements in individual and organization performance

Helps to increase employee motivation and commitment by linking business unit goal to individual objectives (line of sight) and rewards

Development focused

Strengthens relationships between individuals and their managers through continuous communication.


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Assessment Feedback IntegrityThe 360 Degree Process

Best Practices Goal Setting and Feedback

– Aligned with negotiated requirements or SLAs

– Aligned with organization objectives

– Multiple, objective, negotiated sources of feedback

– Typically facilitated by employee’s manager

– Typical Feedback Providers

» Manager

» Self

» Project Manager

» Key Customers

» Peers

Effectiveness of IT Staffing Strategies

Your Manager

Your Subordinates

Your Supplier

Your Customer

YOU

Inputs Outputs

Requirements and Feedback Requirements and Feedback


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Employees rewarded for results achieved

(Compensation/Recognition)

Performance results summarydiscussion

Performance Ratings calibrated across the IT organization.

Manager writes initial Performance Results Summary

Mid-Year Performance Review

Establish IT Goals and individual/team objectives1

2

3

4

5

6

June - July

December

January

February

March

January - FebruaryC

oaching

Feed

back

Performance ManagementA Six-Step Process


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DEVELOPMENT

PerformanceManagement

Specific time period forevaluation of performance(short-term)

Linked to compensation Development of critical

competencies for current roleand achievement of desired performance results for Performance year.

CareerDevelopment

Defined timeline (long-term) Linked to employee growth Competency gap analysis and

development to close gap for achievement of career goal.

Win-win occurs when development for business need (performance) supports development for employee desired career goal.

Performance Management and Career Development


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Total Reward

Long-Term Incentives Stock option Restricted stock Deferred cash

Annual Variable Pay Premium pay Annual incentives Project milestone Project completion Cash recognition (spot award)

Base Pay

Benefits Pension 401(k) Healthcare Disability Vacation

Perquisites Company car Commute service On-site amenities Health club

Non-Cash Recognition Pat-on-the back Public recognition

of achievement Tech toys

Total

Rem

uneration

Job matches skills/ competencies

Performance feedback Job security Personal growth Career advancement

CultureWork

Environment

Affiliation Reward

Career Reward

Indirect Financial

Reward

Direct Financial

Reward

Developing a Total Reward Strategy for IT

Total Cash Compensation


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Base Salary Targets Total Cash Compensation Targets

Compensation StrategyP

erce

nt a

ge

of

Res

po

nd

ents

Source: people3’s 2003 IT Market Compensation Study

Per

cen

t ag

e o

f R

esp

on

den

ts

Target Percentile Target Percentile(N=131)(N=135)


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Compensation Strategy



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Linking Pay To PerformancePaying For What People Do And How They Do It

Performance Linked to Rewards

The performance equations represent an overall practice of high-performing IT organizations. The three critical elements which contribute to superior performance in an IT role are identified and are linked into market-competitive reward and recognition.

Education

Training

Accountabilities

Goals

Assignments

Behaviors (Competencies)

Reward and Recognition

Knowledge and Skills

WhatNeeds to Be

Done

How Work is Done…

(Which Leads to Optimal Results)

Actual

Results

Accomplished

+ + =



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Compensation Strategy

Results-oriented reward programs drive the right behaviors required for business success.


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SummaryCharacteristics of a High-Performing IT Organization

Clear and articulated IT Strategy in support of a Business Strategy

Clear and articulated Mission, Vision and Values

Strong, ongoing communications (360 degree)

Formal and coordinated alignment with business units (often through an IT Business Office)

Program management office (PMO) and competency centers

Identified and formalized work processes

Formalized role definitions—people understand the requirements of their job and their part in the IT process Position descriptions (job characteristics, project complexity, education and experience)

Required business, behavioral and technical competencies

Formal career paths


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Formalized career development process in place

Performance management system in place, supported by a measurement culture

Rewards (financial and non-financial) that align to individual goals and desired behaviors

Alignment is Key!

SummaryCharacteristics of a High-Performing IT Organization

providing business value: managing people to support a high

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